Siam Makro

Slightly below estimate

Siam Makro Plc

3% below estimate

MAKRO reported a 4Q13 net profit of Bt1.3bn, up by 9% YoY and 27% QoQ. The figure missed our estimate by 3%, due to slimmer GM than modeled.

Results highlights

Sales grew 13% YoY to Bt34.6bn, in line with our model, driven by 8.5percent SSSG and branch expansion. Gross margin dipped 25 bps YoY to 8.8% (we had expected flat GM)—low GM for three new stores that opened during 4Q13 outweighed the effect of a higher proportion of HoReCa items in the sales mix.

The SG&A/sales ratio was maintained at 6.6% in 4Q13, despite higher wage costs and aggressive expansion. As such, MAKRO looks to be the only retailer under our coverage that successfully prevented its SG&A/sales ratio from rising in YoY terms.

The firm announced a final dividend of Bt0.3/share, making for a total dividend of Bt0.8/share for FY13 (a yield of 2.6%). XD on March 6.

Outlook

We expect same-store sales to continue rising, but momentum is likely to slow in 1Q14, as the prevailing weak consumption environment and political unrest present major headwinds. Regardless, MAKRO's SSSG should keep outperforming the industry, supported by strong sustained demand among HoReCa customers.

We expect synergies with CPALL to start manifesting in 1Q14 and we anticipate a clearly observable impact on the income statement in 2Q14. However, management has yet to offer any guidance with regard to scope for gross margin upside, so we have left synergy-building as upside to our model.

What's changed?

Our forecast and target price stand unchanged for the moment.

Recommendation

We still like MAKRO for its business model and strong growth profile. However, the valuation looks stretched— an FY14 PER of 28.7x versus a peer average of 25.8x. Our HOLD rating stands with a YE14 target price of Bt32.